Inflation in Djibouti

A short history of inflation in Djibouti

The Currency Board (1949 onwards)

Djibouti has run a currency board since 1949, one of the oldest still operating anywhere, with the franc fixed to the United States dollar and fully backed by reserves. It removes any possibility of financing the government by printing money, and it has held through wars in every neighbouring country.

Inflation is therefore almost entirely imported. Djibouti grows very little and imports nearly all its food and fuel, so the price level follows world commodity prices and the dollar. Its economy depends on its port, which handles most of landlocked Ethiopia's trade, and on the foreign military bases stationed there, both of which bring in the dollars the peg requires.

Post-Covid Inflation (2021 to 2023)

In Djibouti, prices rose fastest in June 2022, at 11.5%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.